S&P affirms Abu Dhabi's rating on 'strong' fiscal and external positions

The exceptional strength of the government's balance sheet provides a buffer to shocks, agency says

The Abu Dhabi skyline. The emirate has fiscal buffers equivalent to more than 350 per cent of its gross domestic product. Khushnum Bhandari / The National

S&P Global Ratings has affirmed its “AA/Stable/A-1+” investment grade rating for Abu Dhabi, with a “stable” outlook supported by the emirate's strong fiscal and external positions over the next two years, amid continued prudent policymaking.

Abu Dhabi's fiscal buffers, equivalent to more than 350 per cent of gross domestic product, underpin its creditworthiness, the rating agency said in a report on Tuesday.

“The exceptional strength of the government's balance sheet provides a buffer to counteract fiscal and external shocks, as well as the effects of high geopolitical uncertainty,” the report said.

“We estimate the government’s net asset position at about 360 per cent of GDP in 2023. We do not expect it to require deficit financing over the period to 2026.”

Abu Dhabi's gross domestic product exceeded Dh1.1 trillion ($299.5 billion) last year, an estimated 9.3 per cent growth over 2021, with the non-oil sector accounting for half of it, Ahmed Al Zaabi, chairman of the Abu Dhabi Department of Economic Development, said this month.

The UAE capital aims to increase its non-oil exports by 143 per cent to Dh178.8 billion by 2031, he told the Annual Investment Meeting conference in Abu Dhabi.

Abu Dhabi's economy grew by 10.5 per cent on an annual basis in the first nine months of 2022, the fastest expansion in the Mena region, according to data from the Statistics Centre Abu Dhabi.

The non-oil sector contributed 50.3 per cent to the emirate's GDP, figures showed.

According to S&P estimates, economic growth in the emirate accelerated to 9.3 per cent in 2022, with the hydrocarbon sector expanding by 10.2 per cent and contributing half of the increase in total GDP.

Non-hydrocarbon activity also increased by 8.4 per cent, with the largest contributions coming from manufacturing (8.2 per cent), construction (7.8 per cent), financial and insurance (5.6 per cent), and public administration, defence and social security (5.5 per cent), it said.

This year, the agency has projected non-hydrocarbon growth of about 4 per cent, partly due to tighter monetary policy conditions, with the sector expected to average about 3.5 per cent growth between 2024 and 2026.

S&P expects Abu Dhabi's oil production to increase over the medium term as Opec+ quotas are lifted and capacity rises to 5 million barrels per day (bpd) by 2027, from about 4 million bpd.

Last year, Adnoc approved a Dh550 billion budget for the next five years, with its board also endorsing plans to bring forward the expansion of its production capacity of 5 million bpd to 2027, from the previous target of 2030.

“We expect Adnoc to be better placed than most global peers to weather the effects of the energy transition, supported by its large reserves, cash flow visibility and competitive cost profile,” S&P said.

Meanwhile, the UAE and Abu Dhabi have also introduced structural measures to improve the business environment and encourage foreign investment, “which should boost labour market flexibility and increase investment and foreign worker inflows”, the agency said.

These measures include the new foreign direct investment law in Abu Dhabi that permits 100 per cent ownership of businesses in various sectors and the liberalisation of personal and family laws in the UAE.

“We expect general government surpluses in 2024 to 2026,” S&P said.